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1、Conch Republic Electronics AnalysisAnalysis of Conch Republic ElectronicsDevelop a prototype$750000Sunk costMarket study $200000The new PDA:Variable cost per unit$155Fixed cost per year$4700000Price of per unit$360Necessary equipment$21500000DepreciationSeven-year MACRSSalvage value$4100000Tax rate3
2、5%Required return12%YearMACRS PercentageDepreciationSales volume114.29%$3,072,350 74000224.49%$5,265,35095000317.49%$3,760,350125000412.49%$2,685,35010500058.93%$1,919,95080000The existing model:Price per unit$290Variable cost per unit$120Fixed cost per year$1800000Sales volume of fall by per year15
3、000Price be lowered of per unit$255Sales volume for year 180000Sales volume for year 260000There is no initial outlay for NWC; and Net Working Capital for the PDAs will be 20% of sales.The value of the equipment in five years will be $4.1 million.Introducing the new PDA, it causes the exiting PDA sa
4、les fall down and the price fall down.Therefore: sales for year 1=74000*$360-15000*$290-(80000-15000)*($290-$255) =$20015000Variable cost for year 1=74000*$155-15000*$120=$9670000Sales for year 2=95000*$360-15000*$290-(60000-15000)*($290-$255) =$28275000Variable cost for year 2=95000*$155-15000*$120
5、=$12925000Year12345Sales$20,015,000 $28,275,000 $45,000,000$37,800,000$28,800,000Variable cost$9,670,000 $12,925,000 $19,375,000$16,275,000$12,400,000Fixed cost$4,700,000 $4,700,000 $4,700,000 $4,700,000 $4,700,000 Total cost$14,370,000 $17,625,000 $24,075,000 $20,975,000 $17,100,000 Depreciation $3
6、,072,350 $5,265,350 $3,760,350 $2,685,350 $1,919,950 EBIT$2,572,650 $5,384,650 $17,164,650 $14,139,650 $9,780,050 Tax$900,427.50 $1,884,627.50 $6,007,627.50 $4,948,877.50 $3,423,017.50 Net income$1,672,222.50 $3,500,022.50 $11,157,022.50 $9,190,772.50 $6,357,032.50 Net working capital=sales*20%Proje
7、ct cash flow=Project operating cash flow-Project changes in net working capital-project capital spendingOperating cash flow=EBIT+Depreciation-TaxesChange in NWC=Ending NWC-Beginning NWCYear12345Operating cash flow$4,744,572.50 $8,765,372.50 $14,917,372.50 $11,876,122.50 $8,276,982.50 net working cap
8、ital$4,003,000 $5,655,000 $9,000,000 $7,560,000 $5,760,000 initial NWC$0 $4,003,000 $5,655,000 $9,000,000 $7,560,000 Ending NWC$4,003,000 $5,655,000 $9,000,000 $7,560,000 $0 Change in NWC$4,003,000 $1,652,000 $3,345,000 ($1,440,000)($7,560,000)NET Cash flow $741,572.50 $7,113,372.50 $11,572,372.50 $
9、13,316,122.50 15836982.5The book value of equipment after the depreciation=$21500000-$3,072,350 - $5,265,350-$3,760,350-$2,685,350-$1,919,950=$4796650Pretax salvage value of equipment=$4100000After-tax cash flow of equipment=$4100000+($4796650-$4100000)*35%=$4343827.5Year Cash flow0($21,500,000.00)1
10、$741,572.50 2$7,113,372.50 3$11,572,372.50 4$13,316,122.50 5$20180810Part11 What is the payback period of the project? Year Cash flowRemainingPV0($21,500,000.00)1$741,572.50 ($20,758,427.50)$662,118.30 2$7,113,372.50 ($13,645,055.00)$5,670,737.01 3$11,572,372.50 ($2,072,682.50)$8,236,986.17 4$13,316
11、,122.50 $11,243,440.00 $8,462,636.58 5$20180810$11,451,133.56 Payback period=3+ ($13,316,122.50-$11,243,440.00)/ $13,316,122.50 =3.16 years2. What is the profitability index of the project? PI= (the present value of the future cash flow)/(initial investment)PV of the future cash flow=$662,118.30+$5,
12、670,737.01+$8,236,986.17+$8,462+$11,451,133.56=$34,483,611.62 PI=$34,483,611.62 /$21500000=1.603. What is the IRR of the project?IRR is the return that makes the NPV=0.Therefore:NPV=0=-$21500000+($741,572.50/(1+IRR)1)+($7,113,372.50 /(1+IRR)2)+ ($11,572,372.50/(1+IRR)3)+ ($13,316,122.50/(1+IRR)4)($2
13、0180810 / (1+IRR) 5)Use the EXCEL we can get the IRR=27.62%4. What is the NPV of the project?NPV=-$21500000+$662,118.30+$5,670,737.01+$8,236,986.17+$8,462,636.58 +$11,451,133.56 =$12,983,611.62 Part25. How sensitive is the NPV to change in the price of the new PDA? We suppose the price increase $10,
14、 so the price will be$370 per unitTherefore:Year12345Sales$20,755,000 $29,225,000 $46,250,000$38,850,000$29,600,000Variable cost$9,670,000 $12,925,000 $19,375,000$16,275,000$12,400,000Fixed cost$4,700,000 $4,700,000 $4,700,000 $4,700,000 $4,700,000 Total cost$14,370,000 $17,625,000 $24,075,000 $20,975,000 $17,100,000 Depreciation $3,072,350 $5,265,350 $3,760,350 $2,685,350 $1
